Magazine

Adding Customers To The Design Team

February 29, 2004

THE FUTURE OF COMPETITION:

Co-Creating Unique Value with Customers

By C.K. Prahalad and Venkat Ramaswamy

Harvard Business School -- 257 pp -- $29.95

The economy may be revving up, but for CEOs, piloting a corporation isn't going to get any easier. Thanks to the Web, customers have instant, exhaustive access to the information they need to buy smarter and more cheaply. At the same time, the Wal-Martization of U.S. business means that people's business and personal needs are increasingly being met by outfits that provide a tremendous array of commodity-like products and services -- and offer them with Darwinian efficiency. To survive in such a world, managers must make their companies as ruthlessly efficient as Wal-Mart Stores Inc. (WMT). To thrive, they must create things for which people are willing to pay a premium.

Easy to say, hard to do. Fortunately for executives bravely sailing into these waters, noted business strategist C.K. Prahalad and co-author Venkat Ramaswamy, professors at the University of Michigan Business School, have written a practical guidebook, The Future of Competition: Co-Creating Unique Value with Customers. Only by letting individual corporate customers and consumers fashion products and services, the authors posit, will business leaders escape the trap in which their products' only distinction is price. This provocative book, despite its annoying jargon, lays out how to engage with customers in new ways and how to change organizational behavior to make co-creation natural rather than an isolated, heroic act.

The implications of their thinking are profound. This isn't about tweaking a few management techniques and business processes. Fundamental changes must be made not only to the CEO's role but also every corporate function, from product development to sales and marketing. Indeed, since customers are such essential, active participants in this ultracompetitive landscape, what the authors contemplate is nothing less than the democratization of commerce -- with consumers getting a lot more say over what is served up to them.

The authors illustrate co-creation with dozens of examples. Models include British Petroleum, which, through an online system, pulls in market information from customers, distributes it to the managers and staff who need to know about it, and provides forums for discussing and acting on it. BP is formally organized on geographic lines, which meet only at the top. But the online system reorganizes it around knowledge rather than rank. There's also Deere & Co. (DE), which is developing a GPS-based technology that tracks how farmers use its equipment, diagnoses emerging problems, and warns of potential equipment failures.

The example closest to the authors' ideal is Sumerset Houseboats Inc., the Kentucky-based leader in houseboat construction. Sumerset custom-builds, engaging each customer in a dialogue throughout the design-and-construction process. Via the Web, it also connects a community of Sumerset houseboat owners so they can compare notes. This not only boosts client satisfaction but also helps Sumerset make design decisions that might be used in all of its boats. For instance, alerted to the danger of side-mounted exhausts in marinas, where boats are often tied side by side, Sumerset developed a nine-foot-tall smokestack that it hopes will become the industry standard.

All this co-creation can get expensive. That's why it can't just be tacked on to existing business practices. The authors urge companies to restructure their organizations and adopt technology that brings managers, from CEOs to supervisors, up-to-the-minute customer information, allowing all to respond quickly. Managers need the data presented in ways that fit their roles -- high-level summaries for top brass, detailed stuff for the finance folks, etc. And they need technology that lets them collaborate with colleagues and make decisions fast.

The Future of Competition has some rough edges. It's full of terms such as "co-creation networks" and "knowledge environments" that only a management professor could love. Still it's an important book, full of disruptive ideas. In fact, the authors are impatient with their centuries-old publishing format. They envision a "living book," the contents of which would evolve in response to the shared experiences of authors and readers. In fact, similar phenomena are already starting to emerge: With Web logs, known as "blogs," individuals create a gathering point for communities of people to share information and opinions. The problem is that nobody has figured out how to make money off them. Until they do, co-creation won't take off in publishing, a business dear to the authors' wallets. By Steve Hamm